Apple’s Chart Is Showing a Breakout. What Might Happen Next?

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Apple AAPL has lagged its fellow “Magnificent 7” stocks for so long that market pundit Jim Cramer has said to "own it, don't trade it." But recently, the stock broke out of a technical pattern known as an “ascending triangle” -- a potentially bullish sign.

What does AAPL’s technical and fundamental analysis say might happen next? Let’s that a look:

Apple’s Fundamental Analysis

Is Apple’s future all about its new AI-capable features, which are finding their way into the tech giant’s electronic gadgets? At least some of it might be.

Or is it about the slow-but-steady growth of Apple’s high-margin services businesses, which benefit from the company’s huge installed base of connected gadgetry? We’re probably getting even warmer there.

How about earnings? AAPL reported on Oct. 31 that it earned $1.64 of adjusted earnings per share on $94.9 billion of revenue in the company’s fiscal fourth quarter ended Sept. 28.

Adjusted EPS beat the Street’s consensus estimate by $0.04, while revenues not only beat forecasts but represented 6.1% in year-over-year growth.

In fact, Apple has grown sales by roughly 5% or 6% year on year for five consecutive quarters now. Talk about consistency.

Apple will likely report results for the current quarter in late January. As I write this, Wall Street is looking for the company to record $2.36 in adjusted earnings per share on $124.4 billion in revenues.

That would compare favorably to the $2.18 in adjusted EPS and “just” $119.6 billion of revenues that Apple saw during the same quarter a year earlier. I say "just" because such a number would still represent 4% year-over-year sales growth for the firm.

But for many investors, Apple has always been about cash flow and return of capital to shareholders.

Apple generated $118.2 billion of operating cash flow in the 12 months ended Sept. 28. The company spent $9.5 billion out of that number on capital expenditures, leaving $108.8 billion of free cash flow.

AAPL returned all of that and more to shareholders over the trailing 12 months. The firm repurchased $100.4 billion of its common stock, while also paying out $15.2 billion in dividends to shareholders.

Apple’s Technical Analysis

Now let’s look at AAPL’s chart as of Wednesday, going back some eight months:

Readers will see that the stock rallied from mid-April into July, but then sold off.

Shares then found support in early August in between the 50% and 61.8% Fibonacci retracement levels of the entire rally, as denoted by the black horizontal lines at the chart’s left.

From there, AAPL formed what’s called an “ascending triangle” pattern, marked with the purple lines in the chart above.

The triangle’s top line held as a resistance level in October, but Apple hit successively higher lows from April all the way through the ascending triangle’s closure earlier this month. That’s typically a bullish sign.

The pivot coming off of the ascending triangle stands at $238 in the chart above -- below the $249.79 that the stock closed at on Thursday.

Does that mean that Apple’s upward run is near or at maturation? Not necessarily.

A 20% run from a pivot point is historically reasonable for a Mag-7 stock, which would put the stock at $285.60 -- or about 14% above Thursday’s closing price.

Meanwhile, Apple’s Relative Strength Index (the gray line at the top of the chart) looks extremely strong as well, to the point of being technically overbought. However, that condition can often last longer than one might think.

Similarly, the stock’s daily Moving Average Convergence Divergence indicator -- or “MACD,” denoted by the black and gold lines and the blue bars at the bottom – seems quite bullish.

Apple’s 12-day Exponential Moving Average (or “EMA,” marked with a black line) is sitting above the stocks 26-Day EMA (the gold line), while the histogram of AAPL’s 9-Day EMA (the blue bars) is above zero. All of those components lined up in that way are historically positive for stocks.

Another apparent bullish sign is the fact that AAPL’s shorter-term moving averages are running above its longer-term ones.

The chart above shows Apple’s 21-Day EMA (marked with a green line) above its 50-day Simple Moving Average, or “SMA,” as denoted by a blue line. Similarly, Apple’s 50-day SMA is in turn running above Apple’s 200-day SMA, marked with a red line above.

Such relationships typically serve as confirmation of an uptrend.

(Moomoo Technologies Inc. Markets Commentator Stephen “Sarge” Guilfoyle had no position in Apple at the time of writing this column.)

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